I know absolutely nothing about this, but it does strike me it might be self-fulfilling? Companies that have access to more investment tend to win more often, and thus become 'investment grade', while junk-rated firms fail because they don't have the runway?
You can hold both things in your mind and they aren't contradictory. It can be a bad system but it can still be suspicious if someone behaves outside the norm inside it.
Other posts made me understand what it actually measures and why is it meaningful - it tells you if you lend this entity money at the govt bond interest rate, will this entity be able to pay back more or less eventiually?
Obviously a financially rational person wouldn't lend money with worse returns it can get from the government risk-free as that would be charity, hence these are considered 'junk'.
> not changing my overall feeling that credit ratings are junk science
Then you have been misinformed. Rated bonds by and large fail at the rating predicted by the big three [1].
[1] https://www.ft.com/content/d97e1e86-1e90-4c5c-b972-052d43a36...
I know absolutely nothing about this, but it does strike me it might be self-fulfilling? Companies that have access to more investment tend to win more often, and thus become 'investment grade', while junk-rated firms fail because they don't have the runway?
If true, that might be a problem for society, but it doesn’t matter for investors. They only care about reliable predictions.
You can hold both things in your mind and they aren't contradictory. It can be a bad system but it can still be suspicious if someone behaves outside the norm inside it.
Other posts made me understand what it actually measures and why is it meaningful - it tells you if you lend this entity money at the govt bond interest rate, will this entity be able to pay back more or less eventiually?
Obviously a financially rational person wouldn't lend money with worse returns it can get from the government risk-free as that would be charity, hence these are considered 'junk'.
I agree but I think both things can be true . Like in this case.